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Based on the information of the table below, the United Kingdom has an absolute advantage in the production of production of

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Answer #1

1. c) both goods; neither goods

Absolute Advantage:

Absolute advantage is the ability of a country to produce a good or service at a lower per unit cost as compared to any other country that produces same good or service.

United Kingdom has an absolute advantage in the production of both goods.

2. Comparative Advantage

A country has a comparative advantage in producing that good if the opportunity cost of producing that good is lower in that country as compared to another country.

United Kingdom:

3 Umbrellas = 1 bushel of corn

1 Umbrella = 1/3 = 0.33 bushel of corn

1 bushel of corn = 3 umbrellas

Opportunity cost of 1 Umbrella is 0.33 bushel of corn and 1 bushel of corn is 3 umbrellas.

Rest of the World:

2 Umbrellas = 1/4 bushel of corn

1 Umbrella = 1/8 = 0.125 bushel of corn

1 bushel of corn = 2 x 4 = 8 umbrellas

Opportunity cost of 1 Umbrella is 0.125 bushel of corn and 1 bushel of corn is 8 umbrellas.

Rest of the world has comparative advantage in the production of Umbrella while United Kingdom has comparative advantage in the production of corn.

d) Corn, Umbrellas

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